Don’t Exacerbate Freddie’s Failures

Conn Carroll /
May 16, 2008

The Washington Post reports today that “Senate negotiators broke off talks last night without striking a deal to rescue hundreds of thousands of homeowners at risk of foreclosure, but they said they were close to an agreement.” Let’s hope they don’t get any closer.

The giant mortgage funding company, a bellwether of market conditions, reported that it lost $151 million (66 cents per share) in the three-month period ended March 31, compared with a loss of $133 million (35 cents) in the first quarter of 2007.
…
If the company were forced to liquidate its holdings at current prices, it would have been left with a loss, based on a snapshot Freddie Mac provided of its assets and liabilities. The estimated asset value swung to negative $5.2 billion on March 31 from positive $12.6 billion on Dec. 31.

The hole could have been deeper: If not for changes in valuation methods, the March estimate would have sunk by $4.6 billion more.